Why is the stock market falling? Dow dips over 500 points as investors weigh Fed's policy path

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By William Watts and Barbara Kollmeyer

Rising VIX signals more equity weakness ahead: strategist

U.S. stocks fell sharply Friday, extending losses as bond yields remained elevated and investors continued to weigh up hawkish comments by Federal Reserve Chairman Jerome Powell while earnings reports were disappointing.

How are stocks trading?

On Thursday, the Dow shed 368.03 points, or 1.1%, reversing a gain of as much as 331.43 points in intraday trading. The more-than 700-point intraday swing was its biggest since March 8, according to Dow Jones Market Data. The S&P 500 fell 1.5%, while the Nasdaq Composite slumped 2.1%.

What’s driving the market?

Stock-market weakness picked up Friday where Thursday’s selloff left off, when equities tumbled into the afternoon after Powell added his support for moving faster on raising interest rates to cool inflation, measures that would include a possible 50 basis point interest rate hike in May.

“It would seem investors have been too complacent about the upcoming [Fed] meeting, which will need to change,” said Michael Kramer, founder of Mott Capital, in a note.

The Cboe Volatility Index , an options-based measure of expected volatility over the next 30 days, had been too low heading into the May 3-4 Federal Open Market Committee, or FOMC, meeting, Kramer said. It rose Thursday and was up another 5% at 23.81 on Friday, moving above its long-term average just below 20.

Powell’s remarks appear to make a half percentage point rate hike the base case, with the central bank also likely to announce the beginning of the unwinding of its balance sheet.

“A rising VIX will weigh on stocks,” Kramer said. “If we are entering the time where people start putting hedges back on, the market has further to fall.”

The benchmark 10-year Treasury yield , meanwhile, pulled back to around 2.87% after climbing about 8.1 basis points to 2.917% on Thursday, the highest since Dec. 4, 2018.

Read: How to invest as inflation, higher interest rates and war roil markets

And some are warning that the Nasdaq Composite is looking particularly vulnerable. The week has delivered some big earnings news for the technology sector, with investors cheering Thursday’s results from Tesla(TSLA), on the heels of deeply disappointing Netflix (NFLX) results.

“The technical situation looks suddenly far more bearish today [Friday] for equities after yesterday’s powerful selloff, which took the Nasdaq-100 below the prior pivot low, possibly opening up for a run into the ultimate pivot low just below 13,000 from early March,” said strategists at Saxo Bank in a note.

“The broader S&P 500 index has yet to capitulate below recent lows but did see a dramatic rejection of the attempt to trade above the 200-day moving average yesterday,” they said.

Next week will mark another big week for earnings, with 558 companies reporting, Saxo noted. “It is the big test of companies’ ability to pass on costs to their customers,” they said.

The big names on their list to watch? Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL), UPS Inc. (UPS), Meta Platforms Inc. (FB), Qualcomm Inc. (QCOM), Boeing Co. (BA), PayPal Holdings Inc. (PYPL), Apple Inc. (AAPL), Amazon.com Inc. (AMZN), Mastercard Inc. , Intel Corp.(INTC), Caterpillar Inc. (CAT), Exxon Mobil Corp. (XOM), and Chevron Corp. (CVX) .

Oil prices were also under pressure, with U.S. crude down 1.9% below $102 a barrel.

-William Watts

What companies are in focus?

How are other assets trading?

 

(END) Dow Jones Newswires

04-22-22 1116ET

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